Location Strategy
Introduction What – Location Decisions Where – Important to company Why – Costly to change
Why is Location Important? Affects costs Costs of inputs depend on region Characteristics of labour force depend on region Difficult to change once decision made Objective: maximize benefits of location to the firm
Factors Labour Productivity Exchange Rates Tangible Costs Intangible Costs Attitudes Proximity to Markets Proximity to Suppliers Proximity to Competitors
Choosing a Country Government Culture and economics Market locations Labour Availability of Inputs Exchange rate
Choosing a Community Corporate desires Attractiveness Labour Utilities Environmental Regulations Government Incentives Proximity Land and Construction Costs
Choosing a Site Size and Cost Air, rail, highway, waterway systems Zoning restrictions Nearness of services and suppliers Environmental impact
Evaluating Location Alternatives How do we choose between locations?
Factor Rating Develop list of factors Weight each factor Develop scale for each factor Score each location for each factor Multiply score by weights Sum points
Break-Even Analysis Determine fixed and variable costs for each location Plot costs vs volume Select location with lowest total cost for expected production volume
Break-Even Analysis 200000 150000 Annual Cost 100000 50000 500 1000 Akron 150000 Chicago Bowling Green Akron lowest cost Bowling Green lowest cost Chicago lowest cost Annual Cost 100000 50000 500 1000 1500 2000 2500 3000 Volume
Center of Gravity Method
Transportation Model
Service Location Strategy Maximize volume of business and revenue Purchasing Power Compatibility with demographics Competition Quality of Competition Uniqueness of location Physical qualities of facilities Operating Policies Quality of Management